Month: January 2013

What\’s to be done about Medicare? The Kaiser Family Foundation has usefully pulled together a list of possible \”Policy Options to Sustain Medicare for the Future.\” I especially liked that the report is fairly exhaustive in listing about 130 options (depending on how one counts options, suboptions, and sub-suboptions), and fairly honest in admitting that no realistic cost estimates for many of those options. Here, I\’ll start with a quick reminder of where Medicare is currently headed, and then list just 12 of the choices–those that in the KFF tally would reduce Medicare costs or raise Medicare taxes by at least $4 billion per year over the next  few years.

Medicare spending is taking off for two reasons: as the baby boomer retire, a rising proportion of Americans will become eligible, and continually rising health care costs will push up costs still further. The first figure shows projections for the rising number of Medicare enrollees and Medicare spending as a share of GDP. The second figure shows Medicare spending projected as a rising share of the overall federal budget.

Discussions of how to fix Medicare often head for happy talk about how, if we all just provide patients and doctors with the right information and incentives, and link them together with the right network of health information technology and thoughtful counselors, we can save billions while improving everyone\’s health. For a recent example, see this report from the United Health UnitedHealth Center for Health Reform & Modernization, which suggests that steps along these lines could save up to $542 billion in Medicare and Medicaid spending over the next decade. It\’s a cheerful story, and I\’m certainly fine with pursuing these kinds of win-win possibilities. But the U.S. health care system has been facing ever-rising costs and talking about win-win solutions for several decades. While we\’re waiting for the cost savings from these kinds of more enlightened and efficient practices to arrive, we need to start thinking about some less pleasant options.

 Here\’s the list of 12 possibilities from the KFF report that would involve Medicare cost savings or revenue increases of at least $4 billion per year. In that report, all the proposals for better information sharing and quality control and improved decision making by patients and providers have the effect on costs and revenues listed as \”Not available,\” which seems fair to me, given historical experience with attempts along these lines as overall health care costs have continues to rise. What\’s left are choices that sting (with the effect on costs or revenues in parentheses). The KFF Report gives a couple of pages of more detailed explanation for each of these, along with the other 100+ choices.

1) Raise the age of Medicare eligibility from 65 to 67 ($113 billion over 10 years)

2) 10% coinsurance payment on all home health episodes ($40 billion over 10 years)

3) Restrict first-dollar Medigap coverage ($53 billion over 10 years)

4) Increasing premiums for Part B and Part D: for example, raise Part B premiums by 2% per year until they cover 35% of total Part B expenses ($231 billion over 10 years)

5)  Increase Medicare payroll tax by 1 percentage point for all workers ($651 billion over 10 years)

6) Require manufacturers to pay a minimum rebate on drugs covered under Medicare Part D for
beneficiaries receiving low-income subsidies ($137 billion over 10 years).

7) Repeal provisions in the Affordable Care Act that would close the Part D coverage gap by
2020 ($51 billion over 10 years)

8) Reduce and restructure graduate medical education payments to hospitals ($69 billion over 10 years)

9) Rebase SNF and home health payment rates: for example, reducing payment updates for post-acute care by 1.1 percentage points ($45 billion over 10 years)

10) Adopt traditional tort reforms at the Federal level ($40 billion to $57 billion over 10 years)

11) Establish a combined deductible, uniform coinsurance rate, and a limit on out-of-pocket
spending, along with Medigap reforms ($93 billion over 10 years)

12) Set Federal contributions per beneficiary at the average plan bid in a given area, including
traditional Medicare as a plan, weighted by enrollment ($161 billion over 10 years)

A few thoughts:

1) One of the policy changes would dramatically increase costs. Congress has been playing a game for years now in which it lowballs the future costs of Medicare by proposing very large cuts  in payments to health care providiers that will take place a few years in the future. Then Congress perpetually pushes back those cuts. To their credit, the official Medicare actuaries have been quite blunt in pointing out \”Why Official Medicare Costs are Understated.\” But if, for example, the currently legislated future cuts in payments to health care providers were replaced with a 10-year freeze on fees and a \”only\” a 5.9% cut in fees for non-primary care services each year for the first three years, Medicare costs would be $200 billion higher over 10 years than the current legislative estimates. If fees for health care providers rise at the rate of GDP growth, or a percentage point or two faster, then Medicare costs will be $300 billion or more higher over the next 10 years. Thus, take your first few hundred billion in cost savings or revenue increases above, and assume that it\’s going to go to sidestepping the huge future cuts to health care providers in current legislation.

2) I did leave out a few proposals on the KFF list for increasing taxes on other items and earmarking the funds for Medicare. For example, one could raise taxes on alcohol, tobacco, soft drinks, or employer-provided health insurance and earmark the funds for Medicare. But one could also raise those taxes and spend the money on deficit reduction or some other program, so at least to me, these are not specifically \”Medicare\” reforms.

3) Just for the record, you can\’t just add up the cost estimates several of these proposals with, because they interact in various ways. For example, option #3 on restricting first-dollar Medigap coverage overlaps heavily with option #11  on Medigap reforms. If the Medicare age was raised to 67, it would alter the cost changes from all of the other proposals.

My bottom line is that too many of the arguments over Medicare spending are magically nonspecific. Sometimes they describe innovations in health care delivery that would improve health and save money and leave everyone with a big rosy smile. I\’m all for such changes, and I\’ll believe in their effectiveness as soon as they are actually effective in reducing costs–but not before. Other time, politicians talk tough about how they will just put a cap on Medicare spending, or just not let it rise at faster than some certain rate. Again, I\’ll believe in the workability of such caps when I\’ve seen them operate for a few years.

In contrast, the list above is not a pleasant one. Some of these proposals reduce coverage for the elderly or require them to pay more. Some reduce payments to health care providers. One raises taxes on current workers. I am fully aware that none of these are popular options! Which options are more palatable is an argument for another day. But these are real choices, and the inexorable arithmetic of Medicare\’s rising costs is likely to force choices among these sorts of options.

I\’ll just admit up front that the vast inequities that exist even before children start school bother me, and that I am predisposed to favor programs that would help disadvantaged children early in life. Thus, I was delighted when Head Start announced some years back that it was going to carry out a randomized control trial–that is, to assign some preschool children randomly to Head Start and others not–so that it would be possible to do a statistically meaningful test of how well Head Start worked.  I presumed that the test would provide ammunition for my pre-existing views.

But as the evidence has built up, Head Start is failing its test. The latest evidence appears in the \”Third Grade Follow-up to the Head Start Impact Study: Final Report,\” which was released in December. The report was carried out by a company called Westat and published by the Office of Planning, Research and Evaluation, Administration for Children and Families, U.S. Department of Health and Human Services. Basically, the report shows that Head Start provides short-term gains to preschool children, but those gains have faded to essentially nothing by third grade.

To appreciate how depressing this conclusion is, you need to appreciate the high quality of the study. It\’s based on a nationally representative sample of more than 5,000 3 and 4 year-olds from low-income families who were eligible for Head Start. These children were randomly either assigned to Head Start, or not. Data collection started in 2002, and so by 2008, data was available on how the children were performing in third grade. The study didn\’t just look at test scores: it considered a range of data on how Head Start might affect aspects of cognitive development, social-emotional development, health status and services, and even parenting practices.

The findings are summarized in this way:  \”In summary, there were initial positive impacts from having access to Head Start, but by the end of 3rd grade there were very few impacts found for either cohort in any of the four domains of cognitive, social-emotional, health and parenting practices. The few impacts that were found did not show a clear pattern of favorable or unfavorable impacts for children.\”

Of course, because I am predisposed to favor these kinds of programs, I look for silver linings. Perhaps for certain specific subgroups such preschool programs can be useful? Perhaps certain kinds of curriculum are more likely to make a lasting difference?  Perhaps helping children from low-income families catch up before they start school is insufficient, but a sustained set of interventions continuing through elementary school would show lasting results? Sometimes studies of early preschool interventions have found little gain in measured outcomes a few years into school, but later gains like greater rates of high school completion or reductions in certain risky behaviors in adolescence. Maybe as the Head Start study continues, these sorts of longer-term gains will emerge?

I don\’t have an answer  here. Some years ago, I edited a paper in a special issue of the  Future of Children about the enormous gaps in school readiness for preschool children. Equal opportunity is an important goal of public policy, and as a society, we are clearly not providing equal opportunity to many children–who are already well behind before their first day of school. If the Head Start study had positive results about the long-run efficacy of preschool programs, I\’d trumpet it to the hills. But the unfolding evidence isn\’t backing up the conclusion I would prefer. 

\”In June 1973, President Richard Nixon addressed the emerging energy crisis, saying that “the answer to our long-term needs lies in developing new forms of energy.” He asked Congress for a five-year, $10 billion budget to “ensure the development of technologies vital to meeting our future energy needs.” With this speech, the federal government set out to engineer a fundamental transformation of our energy supply. All seven subsequent presidents have endorsed Nixon’s goal, and during the past 40 years, the federal government has spent about $150 billion (in 2012 dollars) on energy R&D, offered $35 billion in loan guarantees, and imposed numerous expensive energy mandates in an effort to develop new energy sources. During this time, many talented and dedicated people have worked hard, done some excellent science, and learned a great deal. Yet federal energy technology policy has failed to reshape the U.S. energy market in any meaningful way.\”

The proportion of U.S. adults who are \”in the labor force\”–that is, who either have jobs or are unemployed and looking for a job–has been falling for a decade, as I explored in an April 26, 2012, post on \”Falling Labor Force Participation.\” But for one demographic group, the elderly, labor force participation is rising substantially.

Braedyn Kromer and David Howard of the U.S. Census Bureau offer some snapshots of the data in their just-released survey brief, \”Labor Force Participation and Work Status of People 65 Years and Older.\” For example, here are some comparisons for the labor force participation of men and women, for those over 65 and for some age subgroups. While labor force participation is down a bit for the 75+ age group, it is noticeably higher since 1990 for the 65-69 and 70-74 age group. 

From a slightly longer-run perspective, 1990 was roughly the time period when labor force participation rates among the elderly were at their lowest. Here are a couple of figures from \”The Increasing Labor Force Participation of Older Workers and its Effect on the Income of the Aged,\” by Michael V. Leonesio, Benjamin Bridges, Robert Gesumaria, and Linda Del Bene, which appeared in the Social Security Bulletin earlier in 2012. The figures show that for men over age 62, rates of labor force participation were falling through the 1980s, bottomed out around 1990, and have been rising since then. For women, the pattern is a little different, because a much greater proportion of women entered the paid workforce in the 1970s and 1980s, and so compared with earlier generations, a larger share of women continued working into their 60s and 70s, too.

The rising labor force participation of the elderly in the last two decades represents a remarkable social change. Here\’s a figure created with the ever-useful FRED website at the Federal Reserve Bank of St. Louis, showing the labor force participation rate of those over age 55, going back to the late 1940s.Through the 1950s, 1960s, and 1970s, the notion that more and more people would retire earlier and earlier seemed like an inexorable social trend. But the patterns have changed–and they changed long before the Great Recession.

When I was starting off as a young adult in the paid workforce in the 1980s, I remember looking at this kind of data and thinking about how I might be retire–like many other people!–in my mid-50s. But that\’s clearly not going to happen for me; instead, my current expectation is to be working well into my late 60s or 70s. A steadily rising average age of retirement has become the new normal. But then, a pattern of \”keep living more years while working fewer years\” was never a viable long-term option.

Early in 2012, my book The Instant Economist: Everything You Need to Know About How the Economy Works, was published by Penguin Plume. Here\’s the Amazon link; here\’s the Barnes & Noble link. At the tail end of the year, the book was named an \”Outstanding Academic Title\” by Choice magazine, which is published by the American Library Association. It was also listed as one of the Best Books for 2012 in the \”Business\” category by Library Journal, another prominent trade publication for librarians. 

Here\’s the review from the August 2012 issue of Choice:

\”Currently The Instant Economist is the most readable and up-to-date summary of a typical US college principles of economics course. Following the traditional table of contents–from microeconomics through macroeconomics and international topics–and using original, helpful metaphors (and only two graphs), Taylor (managing editor, Journal of Economic Perspectives) takes the reader through the terminology, key concepts, and controversies dominant in today\’s economics profession. Noteworthy additions to the standard textbook canon are a chapter on personal investing and detailed accounts of the minimum wage, corporate merger, and inequality debates, introducing readers to the data issues that lie behind these controversies. The 36 short chapters reflect the book\’s origin in the author\’s Teaching Company recording, Economics; however, the book is a valuable stand-alone option. For supplementary coverage of the history of
economic thought and more complete institutional context, see Robert Heilbroner and Lester Thurow\’s Economics Explained (4th ed., 1998; 1st ed., CH, Oct\’82). Summing Up: Highly recommended. All levels of undergraduate students as well as general readers wanting a readable introduction to economics. — M. H. Maier, Glendale Community College

And here\’s the review from the Library Journal:

\”Taylor’s (managing editor, Journal of Economic Perspectives) volume can help conversationalists looking to raise the bar for their watercooler chats and casual readers who want to understand better the current economic condition of the United States. Taylor uses simple language with field-specific vocabulary to explain economic concepts, and each concept is successfully reinforced with a real-life—and usually entertaining—example. He hits all the subjects that might interest a layperson, such as division of labor, supply and demand, wages, competition and monopoly, inflation, banking, and trade, for a total of 36 petite chapters—just enough information to give the reader a basic but well-rounded understanding of the subject. VERDICT This highly readable, nonpoliticized look at some of the economic principles that shape our society, presented in an engaging, anecdotal fashion, is highly recommended for armchair economists and anyone with a general interest in the state of our economy. —Poppy Johnson-Renvall, Central New Mexico Community Coll. Lib., Albuquerque

As these reviews emphasize, the book is written for the general non-economist reader who would like to gain some insight into the terminology and structure of economic thinking. Those who are interested in knowing a bit more about the genesis of the book might check here.
As one of the reviews notes, this book was rooted in a course I several years ago for the Teaching Company, which is available here. Or if you are teaching or taking an introductory college-level course in economics, I of course recommend my Principles of Economics textbook, available here.

Back in 1974, Richard Easterlin published a paper called \”Does Economic Growth Improve the Human Lot? Some Empirical Evidence\” (available here and here, for example). Easterlin raised the possibility that what really matters to most people is not their absolute level of income, but their income level relative to others in society. If relative income is what matters, then an overall rise in incomes doesn\’t make me any better off relative to others, and so my happiness does not increase. Income becomes a sort of arms race: even as we all race to get more, it doesn\’t actually make us any happier.

Since then, the question of whether income brings happiness has been much-debated by economist and other social scientists. In \”The New Stylized Facts about Income and Subjective Well-Being,\” Daniel W. Sacks, Betsey Stevenson, and Justin Wolfers offer a compact and readable summary of the evidence (much of which they generated in earlier research) that income is not just relative–and so more income does increase happiness. The paper is available as IZA Discussion Paper No. 7105, released in December.

At a basic level, this research looks at economic data on levels of income and compares it with survey data on on life satisfaction. For example, the Gallup World Poll provides data from 122 countries on the question: “Please imagine a ladder with steps numbered from zero at the bottom to ten at the
top. Suppose we say that the top of the ladder represents the best possible life for you, and the
bottom of the ladder represents the worst possible life for you. On which step of the ladder would
you say you personally feel you stand at this time?”

As a starting point, let\’s compare countries across the world in terms of real per capita GPD, along with their answers to this question on a scale from 0-10. The horizontal axis of the graph is a logarithmic scale: that is, rather than rising by a fixed amount between each tic mark, it rises by a fixed proportion (in this case, doubling) between each tic mark.

The general pattern is clear those in higher-income countries tend to report more life satisfaction. The best-fit straight line is drawn through the data. The much lighter dotted line is a \”non-parametric\” line which is a best-fit line that isn\’t required to be straight,and thus flattens out near the bottom and curves more steeply at the top than a straight line. Broadly speaking, it seems as if each doubling of income does lead to a distinct rise in the happiness scale, both for low-income and for high-income countries.

Of course, this result by itself doesn\’t prove the case either way. It could be that people in high-income countries are happier because they perceive that they are not in low-income countries, and so the happiness from their income is relative, rather than absolute. Thus, a second test is to look within individual countries at the happiness level of those with different income levels. If happiness from income is a relative concept, one might expect that, say, the rise in income from being a low-income person in the U.S to being a high-income person in the U.S. would bring more happiness, but the rise in happiness should be much less within a country than it would be across countries. However, the rise in happiness as a result of higher incomes within a country ends up looking very much like the relationship between countries.

Yet another test is to look at comparisons over time: that is, as economic growth gradually raises income levels, do people on average within a given country report a higher level of  happiness. The data here is harder to interpret, because long-run data on happiness measures isn\’t available for many countries, and the wording of the survey questions about life satisfaction often changes over time. While acknowledging that the existing evidence is messy and difficult to interpret firmly, the authors argue that it is at least consistent with the same finding: that is, higher income levels over time are correlated with higher reported life satisfaction.

But not for the United States! Sacks, Stevenson, and Wolfers write: \”The US, however, remains a paradoxical counter-example: GDP has approximately doubled since 1972 and well-being, as measured by the General Social Survey, has decreased slightly.\” The authors point out that any individual country may have specific social changes that alter the reported \”life satisfaction.\” In particular, they point out that inequality of income started rising in the U.S. economy in the 1970s, which may explain why the typical or median person in the economy isn\’t feeling much better off. They write: \”We suggest that the US is more of an interesting outlier than a key example.\”

Those who want to sort through why Sacks, Stevenson, and Wolfers reach different conclusion from Easterlin can dig into the paper itself: a lot of the difference, they argue, is just that more and better data is available now.

For my own part, I confess that I find happiness surveys both intriguing and dubious. It seems to me that higher levels of income are typically correlated with more health, education, travel, consumption, and a higher quality of recreation, so it\’s not a surprise to me it seems to me that happiness rises iwth income. On the other side, it does seem to me that survey questions about life satisfaction are answered in the context of a particular place and time. If a person says that their life satisfaction was a 7 in 1960 on a scale of 0-10, and another person says that their life satisfaction is a 7 in 2013, are those two people really equally satisfied? To put it another way, if the person from 2013 was transported by a time machine back to live in 1960, with all their memories and knowledge of the technologies, medicines, foods, education, and travel available in 2013, would that time traveller really be equally happy in either time period? I suspect that when most people are asked to rank happiness on a scale of 0-10, they don\’t say to themselves: \”Well, people living 100 years from now might have extraordinarily high levels of income and technology, so compared with them, I\’m really no more than a 2.\” At best, survey questions on a scale of 0-10 seem like an extremely rough-and-ready way of measuring life satisfaction across very different countries or across substantial periods of time.

Thomas Piketty and Gabriel Zucman have been building up an intriguing set of estimates of wealth/income ratios, both over time and across countries. The U.S. wealth/income measures look quite mainstream by European standards, both in the last few decades and when looking back to 1870. The graphs that follow are from an October 2012 presentation called  \”Capital is Back:Wealth-Income Ratios in Rich Countries 1870-2010.\” 

 Just to be clear, \”income\” to economists is a \”flow\” concept over a period of time–for example, it might be what you receive in compensation for your labor and in return on your savings in a certain year. Wealth, on the other hand, is a \”stock\” concept of the accumulation of assets over time–for a person, it would include the value of equity in your home, as well as the value of what\’s in your savings account or other financial investments. High income and wealth do tend to go together. But it\’s possible to have high income, spend it all, and have little wealth; alternatively, it\’s possible to have low income but steady saving, or perhaps the good luck to invest in the early days of IBM or Apple or Google, and end up with high wealth.

For starters, here\’s the wealth/income ratio for nine countries from 1970-2010. To help make sense of the graph, let\’s pick out a few of the countries. The line that peaks far above other countries in the middle of the figure, at around 700% in 1990, is Japan at the height of its stock market and property bubble. The country with the highest wealth/income level in 2010 was Spain, presumably driven by a property-market price bubble in that country. The line of black squares, marching higher in recent years, is Italy. In short, a high wealth/income ratio can be a danger signal of possible bubbles in asset markets. Meanwhile, fundamentally healthy economies like Germany (dark triangles) and Canada (light triangles) have seen a rise in wealth/income ratios, but are at the bottom of the range of this group of countries. The U.S. (hollow triangles) is in the middle of the pack. If you look closely, you can see a rise in the U.S. wealth/income ratio in the late 1990s for the dot-com bubble, and again in the mid-2000s for the housing price bubble, but the 2010 value for the U.S. is near the bottom of the range.

Now here\’s a longer-term perspective, from 1870 to 2010, comparing several major economies of Europe and the United States. In this long-run perspective, both Europe and the U.S. have had a U-shaped pattern of wealth/income ratios over time, but the European U rises higher and dips deeper than the American U.

Just what the wealth/income ratio telling us? Here are some thoughts:

1) When wealth/income spikes up, it\’s a potential danger sign of financial instability in the economy.

2) Wealth is typically much more concentrated than income, and so when the wealth/income ratio is high, the political power of those holding lots of assets is probably stronger. The power of mega-rich billionaires, not just in the U.S. and Europe, but also in China and across fast-growing economies of the world, is large and growing. 

3) The long-run data suggests that the wealth/income ratios observed from, say, 1940 up to about 1980, were historically on the low side. Thus, it may be that the rise in wealth/income ratios in the last few decades is a return to historical norms. (Piketty and Zucman make this case in more detail.)

4) As Picketty and Zucman write: \”There’s nothing bad about the return of capital: k is useful; but it raises new issues about k regulation & taxation.\” In general, as wealth becomes relatively more important, it deserves a larger share of our social discussion and public policy attention.

For those who are interested, here\’s a post from June 13, 2012, on \”Wealth by Distribution, Region, and Age\” in the United States. 

For a few years now, one of my mental images of the world economy is that the U.S. economy is by far the major importer of capital, while the major exporters of capital are China, Germany, and Japan. While that mental image remains true, the situation isn\’t as extreme as a few years back.

Here\’s are the pie graph for 2005, from the Global Financial Stability Report of the IMF. That year, the U.S. economy absorbed nearly two-thirds of all global capital imports. Japan was the major exporter of capital that hear, followed by China and Germany, with Saudi Arabia and Russia also playing large roles.

Now here\’s the comparable graph for 2011. The U.S. economy is now absorbing only about one-third of all global capital imports. Germany has become the world\’s largest capital exporter, edging out  China, and then followed by Saudi Arabia and Japan.

On the U.S. side, a large part  of what is driving this change is the reduction in the U.S. trade deficits. Here\’s a figure showing U.S. current account balances as a share of GDP, created with the ever-useful FRED website run by the St. Louis Fed. After the trade deficit had truly plummeted around 2006, at the worst of housing bubble, it is now back to the depths plumbed during the mid-1980s.

And here\’s a figure showing quarterly inflows of foreign capital to the U.S. economy. Notice how the U.S. economy became dramatically more dependent on inflows of foreign capital as the housing price bubble inflated during the mid-2000s. In addition, one the reasons behind the financial crisis and lack of available capital during the darkest times of late 2008 and early 2009 was that inflows of international dropped so dramatically–actually turning into outflows for a brief time. The inflow of international capital then rebounded before plummeting again, and turning into outflows during the second quarter of 2012.

Thus, it\’s fair to note that the U.S. economy is not absorbing the same share of global capital imports as it was a few years back–but it still absorbs an outsized share of global capital imports. In addition, the sharp drops in the quantities of foreign capital coming into the U.S. economy, both during the Great Recession and then from mid-2010 into early 2012, show how the U.S. has come to depend on these inflows of capital imports–and how the U.S. economy can be vulnerable to these inflows being disrupted.
 

Back in late 2011, I amused myself for a time tracking the reports in which various well-known agencies pointed out the flaws in subsidizing biofuels. a June 2011 post, \”Everyone Hates Biofuels,\” I pointed out a report in which 10 international agencies made an unambiguous proposal that high-income countries drop their subsidies for biofuels. I followed up with \”The Committee on World Food Security Hates Biofuels\” in August 2011 and  \”More on Hating Biofuels: The National Research Council\” in October 2011.

But of all the problems with subsidizing the production of ethanol from corn–the cost, the distortions in price of farmland, the lack of any reductions in carbon dioxide emissions, and others–clearly the most serious problem is that that it is causing people in low-income countries to go hungry. Timothy A. Wise lays out \”The Cost to Developing Countries of U.S. Corn Ethanol Expansion\” in a working paper published in October 2012 by the Global Development and Environment Institute at Tufts University.

The article offers a lot more detail, but the basic outline is simple enough. Primarily because of government subsidies, the share of the U.S. corn crop going to produce ethanol has risen dramatically in the last few years, up to about 40%.

There are  number of reasons why global prices for corn have gone sky-high in the last few years, like the drought in summer 2012 that cut the U.S. corn harvest, but one of the major factors is clearly that government subsidies are diverting large share of corn production into ethanol. Here\’s a graph of global corn (\”maize\”) prices.

This rise in corn prices has hit many low-income countries especially hard. Wise explains: \”Over the last fifty years, and particularly since the 1980s, the world’s least developed countries have gone from being small net exporters of agricultural goods to huge net importers. … The shift came when structural reforms in the 1980s, usually mandated by the International Monetary Fund and the
World Bank, forced indebted developing country governments to open their economies to
agricultural imports while reducing their own domestic support for farmers. The result: a flood of cheap and often-subsidized imports from rich countries forcing local farmers out of business and off the land.\” Here\’s a figure showing how the agricultural trade balance for low-income countries has evolved.

Wise estimates: \”Using conservative estimates from a study on ethanol and corn prices, we find that from 2006-2011 U.S. ethanol expansion cost net corn importing countries worldwide $11.6 billion in higher corn prices with more than half of that cost, $6.6 billion, borne by developing countries.\” Of course, the  high prices for corn hit the pocketbooks of low-income people in low-income countries the hardest.

It\’s been clear for awhile now that subsidizing the production of corn-based ethanol was primarily a subsidy that flowed to large agri-business concerns that grow and process most of the corn in the United States. These subsidies aren\’t just a costly and ineffective way of pursuing lower energy imports and reduced carbon emissions–they are also causing higher food prices and hunger for some of the poorest people in the world. They should be stopped.